Tax Whistleblower Blog

Courts Confirm that Whistleblower Rewards are Taxable

Although a qui tam reward is different from a Tax Whistleblower reward under IRC s. 7623, the tax treatment of the rewards should be identical.  The Court of Appeals in Burns v. Commissioner, CA 9, 103 AFTR 2d ¶2009-941, recently held that the Tax Court properly determined that final installment of qui tam reward payment was includable in taxpayer’s income for year at issue, even though payment was held in trust account pending bankruptcy court’s resolution of creditor’s claim against her: taxpayer actually received installment.  The Whistleblower had undisputed right to installment, and the government actually made that payment for her benefit; and, even if bankruptcy court prevented the Whistleblower from disposing of that payment and compelled her to use it to pay her creditor, she obtained economic benefit of income through its disbursement to her trust account for eventual satisfaction of that debt.  Also, to extent the Whistleblower lacked dominion over payment, her voluntary surrender of dominion via bankruptcy filing didn’t prevent constructive receipt. ()